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Ameriprise Financial : High Inflation Readings Causing Some Jitters for Investors

11/15/2021 | 05:40pm EDT
Consumer prices in the U.S. rose to their highest level in 31 years in October, making life a little less comfortable for the inflation is temporary camp. The CPI climbed 6.2 percent year-over-year, the highest reading since it reached 6.3 percent in October, 1990. Those two observations are the only two above the 6.0 percent mark since Paul Volcker took the helm at the Federal Reserve to fight inflation that had soared to 14.8 percent in 1980. The monthly increase in the CPI for October was 0.9 percent, replacing an October, 2020 reading of 0.1 percent. Looking ahead, the next three months will see readings of 0.2, 0.2, and 0.3 percent replaced in the trailing twelve-month calculation, suggesting that consumer inflation is likely to remain uncomfortably high, at least into the first quarter of next year.

Treasury Secretary, and former Fed Chair, Janet Yellen said over the weekend that the path of inflation moving forward will depend on the pandemic, and how quickly demand patterns return to normal. For current Fed Chair Powell, whose term is set to expire in February, the current spike in consumer prices has to be uncomfortable as he awaits a decision by the President whether he will be reappointed. That decision is expected to come before Thanksgiving, now just a little over one week away.

Bond Yield Up Following the CPI Release; Treasury Market Volatility Rises

Bond yields climbed higher following the CPI release, rising 12 basis points by week's end to close at 1.56 percent. That increase followed a sharp decline in the ten-year yield after the Fed meeting on November 3 which, despite the Fed's announcement of the commencement of tapering its bond buying program beginning this month, was viewed as a relatively dovish outcome regarding the outlook for interest rates.

The ten-year note yield was 1.60 percent prior to the Fed's announcement. The two-year note yield experienced similar volatility, climbing 11 basis points following the CPI release on Wednesday to end the week at 0.51 percent. Treasury market volatility overall has been rising steadily. Since a mid-September reading of 52 in the ICE Bank of America MOVE index, a weighted average of volatility across the Treasury curve, the index reached a then year-to-date peak of 78 just prior to the November Fed meeting, subsequently falling to 65. Following the CPI release last Wednesday, however, it surged higher once again, ending the week at 79.

Stocks Struggled to Hold Record Highs; Investors Turn Their Attention to the Economic Calendar

Stocks wobbled in response to the CPI report, before stabilizing over the course of Thursday and Friday. The two days of modest gains were not enough, however, to prevent the S&P 500® index from experiencing its first weekly loss in the past six. The 0.3 percent decline left the index just shy of the record closing high of 4701 it had reached on Monday. The CPI report also resulted in an increase in the dollar, with the DXY index rising from 93.96 to 95.13 at Friday's close, its highest level since July, 2020. The DXY index is now higher on the year by almost 6 percent.

With third quarter earnings season winding down, investor focus will shift back toward the economic calendar. Scheduled reports on this week's calendar include October retail sales, which is expected to be quite strong, as is industrial production. Also scheduled are the home builders index, housing starts and building permits, jobless claims and leading indicators. And on Monday, President Biden is expected to sign into law the infrastructure bill, recently passed in the House after a long delay while negotiations continued on the Build Back Better social infrastructure bill. They remain ongoing.

Important Disclosures:
The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.

Some of the opinions, conclusions and forward-looking statements are based on an analysis of information compiled from third-party sources. This information has been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Ameriprise Financial. It is given for informational purposes only and is not a solicitation to buy or sell the securities mentioned. The information is not intended to be used as the sole basis for investment decisions, nor should it be construed as advice designed to meet the specific needs of an individual investor.
Investing involves risk including the risk of loss of principal.

Stock investments involve risk, including loss of principal. High-quality stocks may be appropriate for some investment strategies. Ensure that your investment objectives, time horizon and risk tolerance are aligned with investing in stocks, as they can lose value.

There are risks associated with fixed-income investments, including credit risk, interest rate risk, and prepayment and extension risk. In general, bond prices rise when interest rates fall and vice versa. This effect is usually more pronounced for longer term securities.

A 10-year Treasury note is a debt obligation issued by the United States government that matures in 10 years.

The Consumer Price Index (CPI) measures change in consumer prices as determined by the US Bureau of Labor Statistics.

The MOVE Index is a measure of U.S. interest rate volatility that tracks the movement in U.S. Treasury yield volatility implied by current prices of one-month over-the-counter options on 2-year, 5-year, 10-year and 30-year Treasuries.

Past performance is not a guarantee of future results.

An index is a statistical composite that is not managed. It is not possible to invest directly in an index.

The Standard & Poor's 500 Index (S&P 500® Index), an unmanaged index of common stocks, is frequently used as a general measure of market performance. The index reflects reinvestment of all distributions and changes in market prices but excludes brokerage commissions or other fees. It is not possible to invest directly in an index.

The U.S. Dollar Index (DXY) is an index (or measure) of the value of the United States dollar relative to a basket of foreign currencies, often referred to as a basket of U.S. trade partners' currencies. The Index goes up when the U.S. dollar gains "strength" (value) when compared to other currencies.

Definitions of individual indices and sectors mentioned in this article are available on our website at in the Additional Ameriprise research disclosures section, or through your Ameriprise financial advisor.

Third party companies mentioned are not affiliated with Ameriprise Financial, Inc.

Investment products are not insured by the FDIC, NCUA or any federal agency, are not deposits or obligations of, or guaranteed by any financial institution, and involve investment risks including possible loss of principal and fluctuation in value.

Ameriprise Financial Services, LLC. Member FINRA and SIPC.


Ameriprise Financial Inc. published this content on 15 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 15 November 2021 22:36:04 UTC.

© Publicnow 2021
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Financials (USD)
Sales 2022 14 556 M - -
Net income 2022 2 873 M - -
Net cash 2022 4 332 M - -
P/E ratio 2022 10,3x
Yield 2022 1,81%
Capitalization 30 150 M 30 150 M -
EV / Sales 2022 1,77x
EV / Sales 2023 1,54x
Nbr of Employees 12 000
Free-Float 32,7%
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James Michael Cracchiolo Chairman & Chief Executive Officer
Walter Stanley Berman Executive VP, Chief Financial & Risk Officer
Gerard Smyth Executive Vice President-Technology
Charles Neal Maglaque COO & President-Business Development
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